House Subcommittee Considers Consolidating the Rural Housing Service
Earlier this week, the House Financial Services Subcommittee on Housing and Insurance held a hearing examining the Rural Housing Service (RHS) and the role it plays in the single-family mortgage market. During the hearing, Subcommittee members debated the findings of a 2012 Government Accountability Office (GAO) report that suggested that RHS’s single-family lending programs be consolidated with similar programs administered by the Federal Housing Administration (FHA). The witnesses at the hearing were Tony Hernandez, the Administrator of RHS, and Mathew Scire, the Director for Financial Markets and Community Investment at GAO.
During his opening statement, Subcommittee Chairman Blaine Luetkemeyer (R-MO) highlighted the importance of programs serving rural America’s affordable housing needs. Luetkemeyer said that, as a representative from district with a large rural area, he sees the impact programs like RHS make on rural communities first-hand. Luetkemeyer indicated that he appreciated GAO’s report calling for consideration of consolidating USDA and FHA programs and said he would like to see RHS "streamlined."
Subcommittee Ranking Member Emanuel Cleaver (D-MO) echoed Rep. Luetkemeyer’s sentiment for streamlining RHS in his opening statement. Cleaver also voiced concern about the funding levels for RHS. He stated that there is a way to improve RHS without cutting its budget and argued that he would like to see the budget increased for programs serving rural America’s housing needs.
Hernandez defended the RHS’ single-family programs in his opening statement, arguing that there is not significant overlap between USDA and FHA programs. Many of the customers who receive mortgages through RHS, Hernandez claimed, do not qualify for similar FHA products. Hernandez highlighted the changes RHS has made to streamline its single-family lending program, including the automation process RHS has recently completed, which he said will save the agency roughly $5 million in administration costs per year.
Hernandez also said RHS is pursuing legislative proposals that he feels will improve the program. Hernandez said he wants RHS to delegate loan approvals to its lenders, emulating the way FHA currently handles loan approvals. He also advocated for congressional approval to charge a $50 user fee to cover the costs of maintaining and improving RHS’ underwriting technology. Throughout the hearing, Hernandez mentioned that RHS does not cost taxpayers any money and has never required a taxpayer-funded bailout.
Scire refuted many of Hernandez’s claims in his opening testimony. Specifically, Scire said the GAO found that 74 percent of FHA borrowers meet RHS product requirements, though he did acknowledge that there would be some borrowers who would be unable to receive federal mortgage assistance if RHS were rolled into FHA. Hernandez and Scire went back and forth throughout the hearing about what borrowers RHS serves multiple times.
Committee Ranking Member Maxine Waters (D-CA) pressed both Hernandez and Scire for a direct answer on how consolidation would benefit RHS and FHA. Hernandez responded that he does not see the benefit for RHS to consolidate with FHA, which pleased Waters. Scire said he feels Congress should seriously consider GAO’s recommendation to consolidate RHS and FHA. Waters pressed Scire for facts to back up his consolidation recommendation, which Scire was unable to produce during the hearing.
Luetkemeyer ended the hearing with a set of pointed questions for Hernandez regarding RHS staffing levels. Luetkemeyer said FHA endorsed $786.2 billion in single-family loans in fiscal year 2014, while RHS endorsed $19 billion in single-family loans the same year. Luetkemeyer stated that the total number of RHS staff is roughly double the number of FHA staff. He expressed his strong desire for RHS to be "innovative" and cut their staffing levels to the same as FHA.